Freight and energy demand forecast

Transcription

1 Freight and energy demand forecast 2

2 Table of Contents List of Tables and/or Figures List of Tables and/or Figures 21 Acronyms and Abbreviations Introduction Demand Planning Tools Drivers of Demand Beneficiation Scenarios Introduction Beneficiation Projects that Met the Criteria Macro Forecasting Results South Africa s Total Surface Demand Rail, Port and Pipeline Demand Key Commodities Export Coal Export Iron Ore Export Manganese Power Station Coal Magnetite Iron and Steel Container Units Automotive Units Energy Demand Planning Introduction Energy Demand Model Energy Demand Results Energy Cost Summary and Conclusions 53 Figure 1: Growth in Demand for Freight Transportation per Sector Figure 2: Relationship of Models Used for Demand Planning 24 Figure 3: Historic GDP and Forecasts Assumed 26 Figure 4: Gross Fixed Investment by Type of Organisation 27 Figure 5: Agricultural Freight Areas of Supply and Demand 31 Figure 6: Mining Freight Areas of Supply and Demand 32 Figure 7: Manufacturing Freight Areas of Supply and Demand 33 Figure 8: 2013 Total Freight Flows per Corridor/Port and Direction 34 Figure 9: 2044 Total Surface Flows per Corridor/Port and Direction 34 Figure 10: Rail Market Share Projection (2003) 35 Figure 11: Rail Market Share Projection (2012) 35 Figure 12: Major Rail Commodities 36 Figure 13: High Level Ltpf 2015 Forecast per Broad Rail Commodity Groups 36 Figure 14: LTPF 2015 Port Forecast per Package Type 37 Figure 15: High level LTPF 2015 Port Forecast per Package Type 38 Figure 16: Total SA Liquid Fuel Final Product Demand and Supply 41 Figure 17: Historical Total RSA-Only Liquid Fuel Final Demand 41 Figure 18: Total SA Liquid Fuel Final Product Demand 42 Figure 19: Export Coal Rail Forecast 43 Figure 20: Export Iron Ore Rail Forecast 43 Figure 21: Export Manganese Rail Forecast 44 Figure 22: Power Station Coal Rail Forecast 44 Figure 23: Magnetite Rail Forecast 45 Figure 24: Iron and Steel Rail Forecast 45 Figure 25: Container Units Rail Forecast 46 Figure 26: Automotive Units Rail Forecast 46 Figure 27: Transnet Energy Consumption per Operating Division and Fuel Type 48 Figure 28: Estimated Energy Requirements per Operating Division 50 Figure 28b: Estimated Energy Requirements per Fuel Type 50 Figure 29: Estimated Energy Mix per Operating Division and Fuel Type 51 Figure 30: Electricity Price Increases 52 Figure 31: Fuel Price Trends 52 Figure 32: Estimated Energy Cost per Fuel Type 53 Table 1: High Level LTPF 2015 Forecast per Broad Rail Commodity Groups 36 Table 2: Rail Flows per Commodity on All Major Routes for 2013, 2031 and Table 3: High Level LTPF 2015 Forecast Port Forecast per Package Type 38 Table 4: LTPF 2015 Forecasted Total Imports and Exports per Port for 2013, 2024 and Table 5: Demand by Major Refined Product and RSA Region LTPF 2015 Forecast Transnet SOC Ltd LTPF

3 Disclaimer 1. Introduction This is a Transnet SOC Ltd document published by Transnet Group Planning. This publication is Transnet s Long Term Planning Framework, which projects an unconstrained 30-year view of the demand and capacity requirements to meet future freight demand. This document is used as a resource tool by the Transnet planning community. This document is the property of Transnet SOC Ltd Group Planning. All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means including photocopying, recording, or other electronic or mechanical methods, without the express or prior written permission of Transnet SOC Ltd, except in the case of brief quotations embodied in critical reviews and in certain non-commercial uses permitted by copyright law. Enquiries: Enquiries on content of this chapter can be made to the office of the Executive Manager: Planning Integration in Group Planning on A comprehensive and reliable demand forecast is the starting point for developing a planning framework since the fundamental principle of this LTPF is the development of capacity ahead of demand. The LTPF uses 30-year freight demand forecasts produced by the Transnet Transportation Model (TTM), which in turn is populated from a variety of forecasting models, data and commodity specific research as inputs. This chapter is a summary of the more detailed forecasts published in the Demand Book 2015 MDS Aligned that was released in April 2015 and the primary source of the capacity plans that follow. Another demand element (new in this edition) is that of Transnet s projected future energy demand. Energy demand is recognised as an important driver for infrastructure development and also forms the basis for long term planning in the areas of energy source substitution and energy security risks faced by Transnet. A Transnet-specific Energy Demand Model (EDM) was developed in 2013/14 and with the 2015 update and further refinements a high level summary of results is shown in this chapter. The intention is to show electrical capacity utilisation maps, similar to the current slot utilisation, in the rail chapter for future editions of the LTPF. The 30-year freight demand forecasts used in the LTPF are mostly unconstrained in that they do not account for capital affordability, profitability and other business constraints. Alignment with the Corporate Plan forecasts is undertaken to assign some level of confidence on the forecasts and aligning on assumptions behind the different commodity forecasts. Alignment in this regard does not mean that the Corporate Plan and LTPF forecasts are matched (they are not identical). Acronyms and Abbreviations Overall, the demand for freight transportation is expected to grow from around 761mt to around 1 980mt per annum over the next 30-years. This is about a 159% increase in volume, implying that port, rail, road and pipeline infrastructure will require significant interventions, to ensure that capacity is provided to capture the projected growth in volumes. APDP CAGR CBM CDFM DCT EDM EIUG FDM GDP LFM LTPF MDS MSM OD OEM OHTE RBCT SPM TFR TTM Automotive Production Development Programme Compound Annual Growth Rate Conventional Bouy Mooring Container Demand Forecast Model Durban Container Terminal Energy Demand Model Energy Intensive User Group Freight Demand Model Gross Domestic Product Liquid Fuels Model Long Term Planning Framework Market Demand Strategy Market Share Model Operating Division Original Equipment Manufacturer Overhead Track Equipment Richards Bay Container Terminal Single Point Mooring Transnet Freight Rail Transnet Transportation Model Figure 1: Growth in Demand for Freight Transportation per Sector By 2044, mining freight will represent more than 65% of all goods transported. Manufacturing freight is expected to be about 26% and agricultural products about 9%. 22 Transnet SOC Ltd LTPF

4 2. Demand Planning Tools The demand planning methodology for the LTPF entails using a set of five models shown in Figure 2, to determine the demand for transportation of all types of freight and predicting how this demand will change over the next 30-years. Growth forecast scenarios for the high, likely and low scenarios are independently produced by two economist firms before being modelled. The LTPF uses the likely growth forecast to determine capacity needs while the high and low forecasts are used to check alignment of the Corporate Plan forecasts in terms of realism. Model 3: Container Demand Forecast Model (CDFM): The CDFM is a recent addition to the FDM and models the movement of all containers in South Africa across five typologies namely Marine Deep-sea (import/export), Marine Coastal (alternative to domestic surface logistics), Domestic Intermodal, Empty Repositioning and Transhipment. The inputs to the model are the disaggregated origin-destination freight flows as produced by the FDM and applies parameters that emulate the market drivers unique to each of the five typologies to determine the disaggregate movement of containers. The output of the model is the flow of containers per commodity, per container type between 19 regions in South Africa. Industry engagement, data analysis and trend research have informed the parameters of the model. Model 4: Transnet Transportation Model (TTM): The TTM is the main source of flow data and maps roughly nodes (ports and stations ) and links (rail lines). The TTM flows the Origin-Destination (O-D) pairs obtained from the FDM, CDFM and LFGM onto the Transnet rail, port and pipeline network. The TTM uses gravity flow methodology, a well-established technique to model the flow of goods, people, and so forth. The route that freight will follow is determined by the least total resistance of the connecting links from origin to destination. It resembles the flowing of water through gravity. The TTM allows Transnet planners to test demand flow scenarios and add forecasts from other sources such as the mining sector. It also allows for industrial basin analysis and project specific demand scenarios to be analysed. The TTM is a bespoke demand planning tool developed in-house for Transnet s purposes and is continually being improved, maintained and managed by Group Planning. Figure 2: Relationship of Models Used for Demand Planning Model 1: Liquid Fuels and Gas Model (LFGM): This is a stand-alone flow model specifically aimed at improving the forecasting of commodities associated with the petroleum industry. This group of commodities are unique since the consumption drivers can be linked to economic activity but on the supply side it does not follow the simplified principles assumed in the FDM. The LFGM uses supply-side capacity intelligence and matches the fuel production forecasts with demand and then supplies the projected shortfalls with fuel product imports. The model also simulates via points, or redistribution terminals, which are typical for these commodities. The LFGM and FDM require a synchronisation of input assumptions and alignment of output values before it can be used by Transnet. This is to ensure that the macro-economic growth drivers are aligned on final demand. The LFGM also incorporates a number of scenarios derived, envisaged dynamics within the industry such as oil and gas pricing, energy substitution and efficiencies. Model 5: Market Share Model (MSM): As an add-on to the TTM, the MSM calculates the rail addressable market (RAM) to determine rail targets over the longer-term. It uses TTM surface flows as well as the Transnet Freight Rail (TFR) Traffic File. By comparing planned seven-year volumes with what is available in the market, it enables planners to check the realism of short term targets and make informed longer-term projections for each commodity and each route. Fundamental to the working of the model is the ability to analyse the parcel sizes and distances associated with each commodity on the network. Rail naturally works better for longer distances, big parcel sizes and bulky commodities. Model 6: Energy Demand Model (EDM): The EDM is a decision-support tool that enables the analysis of different energy scenarios. It uses the LTPF and TTM outputs to link future growth to energy consumption within each operating division for the next 30-years. Due to TFR being a significant energy user within Transnet, a more detailed approach is used for different train configurations, type of locomotives, gradients of the routes, electrical losses, etc. An energy peak demand model is also under development. The EDM produces outputs per operating division, fuel source (e.g. electricity, diesel, petrol, gas etc.), activity type (e.g. rail movements, port movements) and location. Model 2: Freight Demand Model (FDM): This is the well-established freight flow and forecasting model sponsored by Transnet and developed by GAIN. The objective of this model is to consider the sources of supply and demand in the economy, disaggregated to 356 districts and 83 commodities. This model essentially translates economic activity in the form of currency (Rand) into production and consumption of goods in the form of tons. It determines where goods are produced and consumed in an origin-destination matrix format. Forecasts are based on macro-economic growth scenarios including: International economic outlook; GDP growth and projected growth of industry sectors; National capital spending; Population growth; and Various other forecasting factors. 24 Transnet SOC Ltd LTPF

5 3. Drivers of Demand GDP as the Primary Driver of the Forecast: A critical input for the FDM and LFGM is economic projections of the disaggregated GDP, translated into a freight flow output. The GDP for 2013 grew by 1,9% and a lower growth of 1,5% was experienced in The compound annual growth rate (CAGR) for the long-range forecast is between 2,7% and 4,8%, indicating the parameters of the Market Demand Strategy (MDS) and providing the forecasting band within which the various Operating Divisions (ODs) should develop their respective business plans. Global Economic Trends: South Africa s reliance on mineral exports implies dependence on major trading partners economic growth rate (about 3%). World economic growth is slower than previously forecasted. Medium-term economic growth of China and India will slow down from 10% p.a. to 6,5% p.a. Mature economies (e.g. USA and Germany) GDP< 2,5% especially because of budget deficits. The current Euro crisis is expected to continue over the short to medium term. Most countries are expected to be more protective against exports from Asia. International Trade: South Africa as the Gateway to Africa: Share of South Africa s total exports going to Africa almost trebled from 6% in 1990 to 18% last year. Share of South Africa s total imports originating from Africa increased five-fold over same period (currently almost 10%). Growth in value-added product exports to Africa to accelerate on the back of higher demand from South Africa of the continent s primary products. Increasing outward foreign direct investment into Africa by South African companies will further underpin trade growth with the continent. Fixed Investment: Figure 3: Historic GDP and Forecasts Assumed Import and Export Forecasts: The disparity between the expected long term CAGR of imports and exports is a challenge. The likely scenario expectation is 3,6% for exports and 4,0% for imports. This phenomenon, together with South Africa s inflation rate (which is generally higher than that of trading partners), will continue to put pressure on the exchange rate and could affect economic growth negatively. Fixed investment growth remains well below the rates observed prior to the global economic crisis. Surplus production capacity in several economic sectors should limit expansion needs in the short to medium- term. Private sector fixed investment is anticipated to rise modestly this year, accelerating from 2015 onward as production capacity comes under pressure. Macroeconomic Trends: Over the last 10 years (2004 to 2013), economic growth in South Africa averaged 2,9% per year. The long term economic growth trend since the mid-nineties was 3% per year. Fixed investment (expressed as a percentage of GDP at market prices) increased significantly during the last two decades from 2,3% per year in the period 1983 to 1994 to 6,8% per year from 2003 to Economic growth was notably curtailed by the lack of sufficient economic infrastructure including capital, skilled labour, land, raw materials and entrepreneurship. Population Growth: Approximately 1,5% per annum was assumed. Figure 4: Gross Fixed Investment by Type of Organisation Government Expenditure: 3,4% per annum (slightly lower than GDP), to make up for the backlog in social infrastructure. 26 Transnet SOC Ltd LTPF

6 4. Beneficiation Scenarios 4.1 Introduction Beneficiation is one of the key drivers that can influence demand forecasts in the future. It refers to a specific area of manufacturing where local and available raw materials are processed further for local consumption (therefore decreasing imports, also called import replacement) or where these value-added commodities are exported rather than the pure raw materials. Manufacturing, where the majority of inputs require imports, was not considered. However, in almost all cases the beneficiation of local raw materials will require some imports of specialised equipment and/or more exotic chemicals that are used in the beneficiation process. The FDM s likely scenario reflects both South Africa s official development plan and the best estimate of what can be achieved, given the capacity that is currently created in the economy. The question that needs to be asked, given the specific raw material export logistics activities configuration that is planned for currently, is what the impact would be on accelerated beneficiation if the necessary production factors could be found to make it work. Will the infrastructure and logistics systems configuration then be a major bottleneck, specifically because too much emphasis was placed on mineral exports? In order to answer these and related questions certain beneficiation scenarios were developed for the LTPF and the capacity impact is described in the chapters on Rail and Ports. Twenty potential beneficiation projects were initially identified, while five were selected for further investigation on the basis that they met most of the following criteria: Significant potential impact on the economy of the country; The project is in the public domain and some sources of information exist; and Viability in terms of finance and supply of sufficient raw materials to beneficiate and the knowledge-base that could secure the successful implementation of such a project exists or can easily be acquired. 4.2 Beneficiation Projects that Met the Criteria For each beneficiation project modelled, four types of freight flow movements were considered: Impacting existing freight movement that is affected by the project. Inbound input freight movement to the project s location. Outbound output freight movement from the project s location. Spin-off freight movements created by the project, even though these are not the primary product/focus of the project. The projects that met the criteria with associated assumptions made and results are as follows (Detailed results can be found in the Demand Book 2015 MDS Aligned): Ferromanganese Smelter (CDC): It is assumed that a ferromanganese smelter will be built at Coega, producing high carbon ferromanganese. Impacting freight movements: Export manganese from Kuruman exported at the port of Port Elizabeth will decrease by tons (rail). Inbound freight movements: Manganese from Kuruman to the smelter in Coega, tons (rail). Dolomite and Limestone from Postmasburg to the smelter in Coega, tons (rail). Coal from Elisras to the smelter in Coega, tons (rail). Electrodes imported at the port of Port Elizabeth, tons (road). Outbound freight movements: Ferromanganese from the smelter in Coega exported at the port of Port Elizabeth, tons (road). Total transport demand is not impacted much. Some additional bulk capacity requirements for rail on the export line, as well as a little additional traffic on SouthCor OEM Vehicle Plant (Nelson Mandela Bay area) Given the already critical mass that exists in the Nelson Mandela Bay Metro, it is assumed that a true Motor City could develop in the area based on projects that will deliver additional capacity in car, truck and component manufacturing. Impacting freight movements: Steel exports from Vanderbijlpark exported at the port of Durban will decrease by tons (road). Motor vehicles imported at the port of Durban for Gauteng will decrease by tons, being ± vehicles (rail). Inbound freight movements: Steel from Vanderbijlpark to the OEM plant, tons (road). Steel imported at the port of Port Elizabeth for the OEM plant, tons (road). Outbound freight movements: Motor vehicles from the OEM plant to Gauteng, tons, being ± vehicles (rail). Motor vehicles from the OEM plant to be exported at the port of Port Elizabeth, tons, being ± vehicles (road). Spin-off freight movements: Motor vehicle parts from Coega will be exported at the port of Port Elizabeth, tons (road). Total transport demand is not impacted much, there is just a small switch of freight from a high-density corridor (NatCor) to a low-density corridor (SouthCor) Crude and Gas Refinery (Coega) It is assumed that a crude refinery will be built at Coega, using imported crude oil to produce fuel to satisfy the predicted future shortfall in the country (project Mthombo). Only the spin-off flows were considered, as this refinery is part of an already considered fuel strategy. Spin-off freight movements: Chemical from the Coega refinery exported at the port of Port Elizabeth, tons (road). Total transport demand is not impacted significantly, but there is expected increased export volumes at Port Elizabeth Sasol 4 Plant It is assumed that a Sasol 4 coal-to-liquids plant could be built at the Waterberg to exploit the considerable coal deposits of this area (project Mafutha) and to satisfy the predicted future shortfall of fuel in the country. Impacting freight movements: Chemicals imported at the port of Durban for Gauteng and KwaZulu-Natal, will decrease by tons (road). Petrol imported at the port of Durban for Gauteng will decrease by tons (road). Diesel imported at the port of Durban for Gauteng will decrease by tons (road). Inbound freight movements: Gas imported from Mozambique to the new SASOL plant, tons (new pipeline). Coal from a SASOL location in Waterberg for the new SASOL plant, tons (conveyor). Outbound freight movements: Petrol from Waterberg to Gauteng, tons (road). Diesel from Waterberg to Gauteng, tons (road). 28 Transnet SOC Ltd LTPF

7 4. Beneficiation Scenarios (continued) 5. Macro Forecasting Results Spin-off freight movements: Chemicals from Waterberg to KwaZulu-Natal and Gauteng, tons (road). Total transport activity could lead to a small decrease in NatCor activity, but a sizeable increase between Gauteng and the Waterberg area. The figures below represent the production distribution (supply and demand) of the three major freight sectors namely agriculture, mining and manufacturing. It shows where goods are produced, mined or imported as well as where it is consumed or exported. The total demand and supply of the South African system should be in balance at all times and this is an important principle to ensure the integrity of the forecast projections Copper and Cobalt Beneficiation It is assumed that the useful life of the Phalaborwa Mining Company (Phalaborwa district, Limpopo) will be extended by importing copper and cobalt concentrate from the Democratic Republic of the Congo for final refining in South Africa. Impacting freight movements: Copper ore from Beitbridge border exported at the port of Durban will decrease by tons (road). Cobalt from Beitbridge border exported at the port of Durban will decrease by tons (road). Inbound freight movements: Copper ore from Beitbridge border to Phalaborwa, tons (road). Cobalt ore from Beitbridge border to Phalaborwa, tons (road). Outbound freight movements: Copper (more refined) from Phalaborwa exported at the port of Durban, tons (road). Cobalt (more refined) from Phalaborwa exported at the port of Durban, tons (road). This project would lead to a very slight decrease on NatCor, and is in fact a rerouting and stop-over of copper from the copper belt. The impact of these five beneficiation projects on the current state of infrastructure will be incorporated in the Rail, Ports and Pipelines plans that are contained in this LTPF Figure 5: Agricultural Freight Areas of Supply and Demand 30 Transnet SOC Ltd LTPF

8 5. Macro Forecasting Results (continued) Figure 6: Mining Freight Areas of Supply and Demand Figure 7: Manufacturing Freight Areas of Supply and Demand 32 Transnet SOC Ltd LTPF

9 5. Macro Forecasting Results (continued) 5.1. South Africa`s Total Surface Demand Total freight on the South African surface is envisaged to increase from around 761mtpa to around 1 980mtpa (an increase of approximately 159%). Flows through the port system will increase from 239mtpa to 565mtpa, and over-border traffic from 31mtpa to 70mtpa (an increase of approximately 128%). As a result, freight flows on the surface of RSA are expected to grow significantly as illustrated to the left. 5.2 Rail, Port and Pipeline Demand Note: It is important to note the following aspects whenever attempting comparisons between LTPF and MDS forecasts: LTPF is based on calendar years (January to December), while the MDS uses financial years (April to March); and MDS forecasts (7 10 years) are used for strategic (seven-year Corporate Plan) planning and intended for planning business operations and budget requirements in anticipation of customer demand, while the LTPF is a long term (30-year) unconstrained forecast based on macro-economic considerations and is intended to provide a planning framework for capacity expansions and to identify any possible blind-spots or market instability Rail One objective of the LTPF is to set a growth path for rail to capture market share and subsequently enable the setting of capacity development timeframes to ensure capacity is created ahead of demand. Rail forecasting is complex and rail freight demand processing faces several challenges including (a) rail flows can follow a variety of alternative routes; (b) rail competes with other modes such as road and pipelines; and (c) not all freight on the surface of South Africa is suitable for rail. For this reason, the MSM model is used to first do market segmentation based on distance distributions, parcel sizes and commodity suitability. Figure 10 reflects rail market share growth in terms of tonnages since The Rail Addressable Market (RAM) was calculated from the MSM. Figure 8: 2013 Total Freight Flows per Corridor/Port and Direction (million tons per annum) Figure 10: Rail Market Share Projection (2003) Purely on a tons moved comparison it is clear that rail is underperforming and has, in fact, lost market share from 28% in 2003 to 27% of total surface volumes in Considering that RAM also represents competitive road volumes, it is unlikely that rail will ever achieve 100% market share, however, by analysing each commodity and route, the LTPF assumes an increase to 36% of total surface volumes in Figure 9: 2044 Total Surface Flows per Corridor/Port and Direction (million tons per annum) General Freight Business (GFB) is pre-dominantly focused on two corridors (the Cape corridor and the Durban to Gauteng corridor). The highly densified export corridors for coal and iron ore are expected to remain more or less stable with some growth on the Northern Cape to the Port Elizabeth/Ngqura port system. Figure 11: Rail Market Share Projection (2012) To be more accurate, market share should ideally be compared using tonkms rather than tons as illustrated in figure 11. Rail currently accounts for 43% of all surface tonkm and is targeted to be 59% by If the road-suitable component is excluded, i.e. the Rail Addressable Market (RAM) is considered, rail s market share was 64% in 2012, growing to 78% by Transnet SOC Ltd LTPF

10 5. Macro Forecasting Results (continued) A percentage breakdown of rail freight by commodity type for 2013 is shown below in Figure , 2031 and 2044 Major Route Rail Volumes (mtpa) Corridor Commodity Ermelo to Richards Bay Coal exports 70,2 114,5 136,0 Johannesburg to Durban Containers 2,9 5,3 9,4 Hotazel to PE/Nqura Manganese exports 5,0 20,1 30,9 Greenview to Komatipoort Magnetite 6,8 27,6 32,0 Sishen to Saldanha Iron ore exports 54,3 73,1 99,3 Iron ore (Domestic) Manganese (Domestic) Total Table 2: Rail Flows per Commodity on All Major Routes for 2013, 2031 and 2044 Figure 12: Major Rail Commodities Coal mining and iron ore exports account for about 56% of the total freight moved by rail. In these cases rail has an almost 100% market share. Refer to both tables 1 and 2 and figure 13 to view the growth opportunities identified in the major commodities nationally and per major corridor. Note: There will be some differences between the LTPF forecasts and those contained in the Transnet Corporate Plan for the initial 10 years due different modelling methods used. The LTPF forecasts use macro-economic modelling while the Transnet Corporate Plan reflect short to medium term shifts based on intelligence about the market and contracts. Volumes (Mtpa) LTPF 2013 LTPF 2024 LTPF 2044 General freight Coal export Iron ore export Manganese export Coal (Domestic and Eskom) Iron ore (Domestic) Manganese (Domestic) Total Table 1: High Level LTPF 2015 Forecast per Broad Rail Commodity Groups It must be recognised that mineral exports are also the most unpredictable of all commodity classes and volumes in the long term are heavily influenced by international markets and a variety of supply side factors. With the current state of the country s major mineral export prices and international dynamics, caution must be taken when utilising any of these long term forecasts and other efforts in research and consultation need to be embarked on in this regard Ports The nine South African ports that fall under the custodianship of Transnet National Ports Authority, as per the National Port Regulations of 2007, include Port Nolloth, Saldanha Bay, Cape Town, Mossel Bay, Port Elizabeth, Ngqura, East London, Durban and Richards Bay. Note: There will be some differences between the LTPF forecasts and those contained in the Transnet Corporate Plan for the initial 10 years due different modelling methods used. The LTPF forecasts use macro-economic modelling while the Transnet Corporate Plan reflect short to medium term shifts based on intelligence about the market and contracts. Port forecasts are typically expressed by groupings of commodities that reflect the infrastructure required in a port to handle such commodities. These groupings are called Package Types and include: Liquid Bulk, Other Dry Bulk, Export Coal, Export Iron Ore, Export Manganese, Breakbulk, Containers and Automotive. Figure 14 displays the overall forecast of all the ports by package type flowing through the ports. Figure 14: LTPF 2015 Port Forecast per Package Type Figure 13: High Level Ltpf 2015 Forecast per Broad Rail Commodity Groups 36 Transnet SOC Ltd LTPF

11 5. Macro Forecasting Results (continued) Figure 15: High level LTPF 2015 Port Forecast per Package Type Table 3 and Figure 15 provide a high level LTPF 2015 port forecast per package type. LTPF 2015 Package type (mtpa) Liquid bulk Other dry bulk Export coal Export iron ore Export manganese Break-bulk Containers Automotive Total Table 3: High Level LTPF 2015 Forecast Port Forecast Per Package Type Not all ports are able to accommodate all commodity types and based on the particular port profile, expansion options may be limited. SA Port profiles: The Port of Saldanha currently handles about 500 vessels per year amounting to about 60 million tons per year. The port s freight volumes are dominated by the iron ore exports (90%), with some liquid bulk (7%) and general break-bulk (3%) making up the remainder. The growth expected for the port over the next 30-years is relatively low at about 2% to 3%. Volume growth is to a large extent is dependent upon developments in iron ore mining and can also be impacted by strategic plans to import LNG and industrial developments in the immediate hinterland; Cape Town provides container, bulk and general cargo handling services to the Western Cape and its largely agricultural hinterland. The port currently handles around 9,2 million tons of cargo per year, with the 30-year forecast predicting around 20,4 million tons of cargo per year. Container handling makes up 61% of the total port throughput in 2013, followed by liquid bulk handling at 27%. Containers are expected to grow at a rate of 2,7% over the forecast period; The Mossel Bay has very limited freight handling in the port ( tons per year), though around 1,7 million kilolitres per year are handled through the Conventional Bouy Mooring (CBM) and Single Point Mooring (SPM). The port handles around 700 vessel calls a year, the majority of which are small. The export and import of SPM and CBM product is the major freight demand for Mossel Bay. The current demand is 1,3 million kilolitres per year and forecasted to grow to 1,8 million kilolitres in 2044, a growth of 1,7% over the forecast period; Port Elizabeth handles containers, manganese ore, vehicles and general cargo. Demand for cargo handling is for automotive and agricultural products in the Nelson Mandela Bay Metro and the Eastern Cape interior, manganese exports from the Northern Cape and refined petroleum products for regional consumption. With the new Port of Nqura now fully operational, the role of PE is changing. The port currently handles around 7 million tonnes of cargo per year, with the 30-year forecast predicting a drop to around 5 million tonnes of cargo per year, primarily due to the relocation of the manganese and liquid bulk terminals; Ngqura is the newest port in the South African port system. The plan is that Ngqura will service Coega IDZ tenants, handle container cargoes, and be positioned to handle overflow Gauteng cargoes as well as targeting transhipment cargoes. The port currently handles around 2 million tonnes of cargo per year, with the 30-year forecast predicting around 60 million tonnes of cargo per year. The biggest drivers of the envisaged growth in volume throughput are Export Manganese and Liquid Bulk, expected to grow to around 30 and 23 million tonnes respectively in 2044; East London primarily handles industrial and agricultural cargo, with a particular focus on servicing the local automotive industry. The port currently handles around 1,2 million tonnes and the 30-year forecast predicting around 2,9 million tonnes of cargo per year. Import liquid bulk handling has the biggest contribution to the total port throughput and is expected to grow from 700 thousand tonnes in 2013 to 1,9 million tonnes in The port, because of its location, is restricted in both width and depth with limited opportunities for future port expansion; Durban handles vessel calls per year, (about 64 million tons of cargo). The 30-year forecast predicts around 147 million tonnes of cargo per year. Major growth areas for the port are seen to be in containers, bulk liquid handling and break-bulk cargoes. Liquid bulk handling is expected to grow from around 23 million tonnes in 2013 to 57 million tonnes in 2044 and containers are expected to grow from around 22 million tonnes to 64 million tonnes over the same period. Note: There is no separate forecast for the proposed Durban dig-out port. The FDM considers both ports to be part of the same system. Planners will need to allocate volumes to individual ports (and terminals) in their capacity plans; and Richards Bay is the largest port in South Africa by tonnage, handling around 98 million tons of cargo per year (1 868 vessel calls), which equates to 40% of South Africa s total port demand. The 30-year forecast predicts around 198 million tons of cargo per year, of which export coal constitutes 69% (136 million tonnes). Major growth areas for the port are seen to be dry bulk and break-bulk cargo handling. Bulk operations in the port currently focus on four major activities: export coal, dry bulk, break-bulk and liquid bulk. Imports Exports LTPF 2015 LTPF Port Name Saldanha Cape Town Mossel bay Port Elizabeth Ngqura East London Durban Richards bay Table 4: LTPF 2015 Forecasted Total Imports and Exports Per Port for 2013, 2024 and Transnet SOC Ltd LTPF

12 5. Macro Forecasting Results (continued) Key Facts and Statistics: Liquid bulk constitutes the largest part of our imports (45,3%). This is expected to change significantly should local refinery capacity be developed; Containers account for about 13,9% and is expected to grow by 3,3% over the forecast period; Coal mining exports constitute the largest part of our exports at 39,9% of all exported commodities and export iron ore is 30,5% of export commodities; Export coal and export iron ore are expected to grow at 2,2% and 2,0% respectively over the forecast period. In this regard export coal is forecasted to grow from 71,1mtpa in 2013 to 140,8mtpa in 2044 and export iron ore to grow from 53,6mtpa in 2012 to 99,3mtpa in 2044; and Manganese is predicted to have the highest growth prospects over the forecast period at 5,5% and Automotive units are expected to grow by 4,4% during this period. Note: Mineral exports also carry the highest risk of all commodities in terms of the forecasts, and confidence levels are relatively low Pipelines and Liquid Fuels The liquid petroleum and gas forecasts are informed by the most likely scenario from the Liquid Fuels and Gas Model (LFGM). The low and high bands were derived based on specifically constructed high and low scenarios taking into consideration the existing and future envisaged dynamics within the industry. Total RSA-only final product demand excludes regional (Botswana, Lesotho, Namibia and Swaziland (BLNS)) as well as other non BLNS exports (Zimbabwe, Mozambique, Zambia, etc.). The total RSA-only final product demand is projected to grow by approximately 3% per annum. Table 5 reflects demand by major refined product and RSA region. The following assumptions apply: A new refinery (Mthombo) is built at Coega by 2024 commissioning capacity (288 thousand barrels per day (tbd) or at 80% turndown capacity) from assumed full capacity (360tbd); A pipeline running from Coega to Bloemfontein, Kroonstad and beyond (tying into the existing inland new MPP24 network) is commissioned in the same year; and Clean Fuels II upgrades and expansion (2018) only Natref and Sapref assumed to expand during upgrades. Indications are that the Clean Fuels II requirements implementation date may also be moved out and will be included in future scenarios subject to information availability. Figure 16 shows the total SA liquid fuels final product demand and supply. This is disaggregated into imported and local supply. The total liquid fuel demand and supply LTPF 2015 forecast is contextualised with the supply side in the graph by providing a view of the South African production output levels (including the new Mthombo Refinery) and imports required to meet the projected demand. Petrol Diesel Jet Rest (excl. Gas) Total refined product (excl. Gas) Crude Figure 16: Total SA Liquid Fuel Final Product Demand and Supply Inland Coastal Other Total Inland Coastal Other Total Inland Coastal Other Total Inland Coastal Other Total Inland Coastal Other Total Inland Coastal Other Total ,9 4,2 1,5 12,7 7,0 4,6 2,1 13,8 1,7 0,6 0,1 2,4 1,3 3,4 0,6 5,2 16,9 12,8 4,4 34,1 5,6 19,1 0,0 24, ,0 4,8 1,8 14,5 12,1 7,6 2,8 22,5 2,2 0,7 0,1 3,0 1,5 3,4 0,4 5,2 23,7 16,4 5,1 45,2 6,1 20,1 0,0 26, ,5 6,0 2,4 19,0 36,7 19,7 4,8 61,2 3,5 1,2 0,2 4,8 2,0 3,6 0,5 6,1 52,7 30,5 7,9 91,1 6,1 35,7 0,0 41,8 Table 5: Demand by Major Refined Product and RSA Region LTPF 2015 Forecast (Billions of Litre Equivalent Units) South Africa will become a net exporter of liquid fuel products after the introduction of the new refinery up to approximately 2027/28, after which demand will again be in excess of the domestic supply capacity, provided no other developments materialise in this period. When it comes to liquid fuels forecasting, it is also important to take into consideration the trend of gradual substitution of petrol with diesel. In figure 17, this gradual substitution is clearly illustrated by the ratio of petrol vs. diesel since the 1950s. Final demand for diesel exceeded petrol for the first time in In order to meet the demand for fuels, South Africa will need to supplement local supply with imports as it will not have sufficient refining capacity over time until the Mthombo Refinery Project comes on line. PetroSA remains confident that the proposed Mthombo Refinery at Coega, Eastern Cape will be constructed and as such, this development was included in the most likely scenario of the Demand Book with an implementation date of At this stage, it is not clear whether a pipeline will be built to supply Gauteng from the Mthombo Refinery or whether product will be shipped via Durban and then via the MPP24 to Gauteng. Since these two alternatives have very different and far-reaching impacts on Transnet s port and pipeline demand, both alternatives were analysed. Figure 17: Historical Total RSA-only Liquid Fuel Final Demand 40 Transnet SOC Ltd LTPF

13 5. Macro Forecasting Results (continued) 6. Key Commodities From the total SA liquid fuels final product demand from 2013 to 2044, it is clear that diesel is the one product that will show significant growth for the next 30-years, see Figure Export Coal Figure 19: Export Coal Rail Forecast The demand for coal is driven primarily by energy and secondary by steel production. Even though coal is expected to lose energy market share in the long term, a 27 to 28% share is assumed to prevail for the nex 30-years. Of the total marketable coal in South Africa, some 29% is exported. The Richards Bay Coal Terminal (RBCT) handles the vast majority (95%) of South Africa s coal trade although smaller tonnages do move through Durban and Maputo. Figure 18: Total SA Liquid Fuel Final Product Demand The bulk of intermediate products (crude and components) as well as gas (Natural and Methane-rich) is mainly transported via pipeline and condensate (from Mossel Bay) by ship. The following assumptions were applied for these products: Crude oil demand is based on refinery production assumptions; Natref, Sapref and Enref crude requirements are imported through Durban s SAPREF single buoy mooring (SBM); Chevref crude requirement is imported through Saldanha and transported by pipeline to Cape Town; Condensate demand used as feedstock to the refinery is based on PetroSA data; Components demand at Sasolburg ex Secunda was based on Sasol data; and LPG demand is extrapolated from Sapia data and multiplied by a factor of 1,2 to cater for Afrox demand not reflected in reported sales volumes. Key Facts and Statistics Crude demand steps up from 2024 based on the assumption of the Mthombo Refinery coming online. Initial ramp-up at 80% of capacity to be followed by final step-up five to six years later; Crude demand remains the same irrespective of whether refined product from Mthombo is transported via a pipeline, or via ship to Durban and then into a pipeline; Petrol is projected to grow relatively constantly at around 1% over the forecast period, while diesel is expected to grow more at 4,6% over the same period; and Jet fuel is also projected to grow relatively constant at around 2,2% over the period, while bitumen is forecasted to grow at 3% over the forecast period. It is estimated that coal export will grow to about 130mt per annum in Currently, over 58% of South Africa s coal exports are destined for Asia, 18,4% to Europe, 11,1% to the Middle East and 6,3% to Africa. In the short to medium term, demand for South African coal from China and India is expected to remain strong, with Europe also expected to remain a substantial source of demand for South African coal. However, analysis on the long term outlook for coal shows some worrying aspects that may need to be factored in as risks in any large long term investment in infrastructure. 6.2 Export Iron Ore Global demand for iron ore is strongly linked to the global steel industry and, more specifically, to steel manufacturing output in China. China is by far the largest importer of iron ore from South Africa. Export volumes have increased steadily in the last 10 years up to the current 54mtpa. South Africa s total reserves in iron ore amount to 9 300mt, or 9% of world reserves (the sixth largest in the world). South African Iron ore is regarded as one of the highest qualities available due to the exceptionally high iron content at 65%. The projected export iron ore on rail is depicted in Figure 20. Figure 20: Export Iron Ore Rail Forecast Excluding China, global iron ore demand is expected to grow at a Compound Annual Growth Rate (CAGR) of 2,9% to During 2015 global growth in steel production is expected to be just 0,6%, down considerably from the recent high in 2013 of 12,0%. Chinese production growth is forecast to slow again, remaining between 1 and 2% in 2016, falling into negative growth in 2017 and The growth forecast for iron ore in the LTPF up to 2024 was assumed to be constrained due to port and rail capacity. It can therefore grow significantly should capacity be released. 42 Transnet SOC Ltd LTPF

14 6. Key Commodities (continued) 6.3 Export Manganese Manganese ore demand is strongly linked to demand for steel, thus China expectedly has a high demand for manganese. This is one of South Africa s richest raw resources being ranked first in the world in quality with approximately 80% of worldwide high-grade manganese reserves. South African reserves are located in the Northern Cape, just south of Postmasburg to the Wessels and Black Rock Mines of Hotazel. Figure 21: Export Manganese Rail Forecast Currently, a total of 5,95 mtpa of manganese ore is exported from SA through Port Elizabeth, Durban and Richards Bay through a combination of bulk and container services on rail and road. Various bridging capacity projects will be implemented to accommodate the envisaged demand until Global manganese ore demand increased by 4.2% year-on-year in 2014, a gain on the growth rates posted in the previous two years. Most of this increase in demand in real terms was captured in the first half of the year. However, in the second half of the year import demand advanced, with India breaking historical import records and import shipments to China also holding strong. The African mines showed an increase of 24%, while China raised its consumption by 12%. In a high growth scenario South Africa can expect to reach 30% of global manganese content supply by 2020 and will have to contribute at least 40% of global supply in manganese to reach its goal which is roughly in line with South Africa s share of contestable seaborne trade to China, the area of expected growth. This translates into an additional 5,7mtpa of manganese ore (contained) that SA would need to supply in Again the LTPF assumed capacity constraints as a limiting factor up to Power Station Coal Figure 22: Power Station Coal Rail Forecast The bulk of the saleable coal produced in South Africa is consumed within the country by the electricity generation sector, which accounted for 66% of total domestic sales in With units of Eskom s Medupi and Kusile power stations coming on stream sometime in 2015 and with the electricity utility mulling the so-called Coal 3 power station, local demand for coal from the electricity generation sector is expected to remain buoyant for many years. Peak demand in Power Station coal is expected in 2025 at around 27mt. With the expected mine closures over time and new power stations being fed by conveyor belt, the long term growth is expected to be around 19mt in Railable growth in this sector is therefore negative after Magnetite Similar to iron ore, the demand for magnetite is currently driven by Chinese steel production. With the future outlook on steel production set to grow over the long term, it is expected that magnetite demand will grow in relative terms. In the short to medium term, however, demand appears to be suppressed, hampered by very low iron ore prices. The major Magnetite reserves in South Africa are in the Bushveld basin. There is 265 million tons of stockpile product that is mainly an output of other mining activity in the region. Figure 23: Magnetite Rail Forecast Magnetite has no fixed trade price spot prices are mainly dependent on quality and logistical factors. With iron ore prices being at a low level, it is becoming challenging for the commodity to compete accordingly. There are also some risks with regards to supply chain capacity (especially rail) and the enablement of the export process and miners capacity to produce requisite volumes once the stockpiles are depleted. The LTPF assumes that the majority of magnetite will be exported via Richards Bay, but clearly the port of Maputo will continue to be a major competitor, making this commodity forecast highly speculative. 6.6 Iron and Steel The South African steel industry has approximately 10,3 to 11,9 mt of steel production capacity, however, the industry has been producing well below capacity since This is primarily production cost related where South African producers are finding it difficult to compete with emerging markets. Figure 24: Iron and Steel Rail Forecast Production of iron and steel is expected to grow at an average of 3,8% p.a. from 2013 until Imports are expected to grow at only 2,4% p.a. over the forecasting period mainly due to import substitution and local surplus capacity. The LTPF assumes that some production growth is possible even though it is unclear exactly where and when this will happen. 44 Transnet SOC Ltd LTPF

15 6. Key Commodities (continued) 6.7 Container Units Internationally, marine deep sea container growth is estimated between 5% and 6% over the next few years, which is higher than expected GDP growth. Trends in the global container vessel fleet are influencing this growth. Drewry Maritime reports that in 2014 the global fleet has reached a turning point with the number of vessels now decreasing. Growth in containers is dependent on the commodities that are being transported for import, export and local transport purposes. Container growth is therefore dependent on just about every industry. There appears to be significant room for rail market share growth with this commodity. Furthermore, opportunities for domestic container markets can accelerate the growth even further although that market segment may be less profitable and not established as yet. With the inception of the Automotive Production Development Programme (APDP) with effect from 1 January 2013, there are some good prospects for the industry. Under this programme, Government has set itself a vision of doubling vehicle production in South Africa by 2020 to 1,2 million vehicles p.a. The APDP will seek to shift the emphasis away from an export focus to one that emphasises value addition and scale in the production of vehicles locally, as well as the further development of world-class automotive component manufacturing. Future production increases will continue to be driven by the need of OEMs to specialise in one or two high volume models, obtaining economies of scale via exports and in turn importing those models not manufactured in the country to complement their domestic model mixes. Market growth will primarily depend upon appropriate rail terminal infrastructure in the major ports and inland hubs around Gauteng. If no terminals are available, containers will remain on increasingly congested roads and will be de-stuffed in warehouse facilities in the back of port zone. Figure 25: Container Units Rail Forecast 6.8 Automotive Units There are currently seven manufacturers of original equipment (OEMs) with assembly plants in South Africa. Industry trends show that, for an OEM to remain competitive in South Africa, it must have a successful export operation. Major export markets for South Africa manufacturers include: China, Japan, Australia and the European Union. Figure 26: Automotive Units Rail Forecast Automotive flows relative to all flows in South Africa is small (0,5% of ton kilometres), but contributes 1,1% to transport costs and 1,7% to logistics costs. A much higher percentage of these flows (84%) are on corridors (compared to 29% of all commodity flows on corridors) and nearly one third each are on Natcor and Southcor (Western Cape to Port Elizabeth). Around 10% of all commodities are on Natcor and less than 2% are on Southcor. 46 Transnet SOC Ltd LTPF

16 7. Energy Demand Planning 7.1 Introduction Energy demand forecasting has emerged as critical for the LTPF. Firstly, energy is a major cost component and decisions on efficiency and technology must play an important role in long term planning frameworks. Secondly, the energy supply landscape is evolving and with that, security of supply and sustainability needs to be incorporated in the long term plans. Recently, energy supply has been identified as one of Transnet s top business risks. South Africa s electricity supply system is under severe strain and power outages have become commonplace. Transnet s operations are extremely dependent on electricity, the tight energy situation is therefore a major risk to the normal operations. In order to manage this risk, it is necessary to understand Transnet s energy requirements and quantify the risk of energy supply in terms of consumption and capacity. Understanding Transnet s energy requirements may potentially influence future national infrastructure development requirements and is therefore also in the national interest for South Africa. In 2014, Transnet required 22,5 million gigajoules (or 22,5 petajoules) of energy. From the breakdown in Figure 1 it is clear that Transnet Freight Rail (TFR) is the operating division with the largest energy usage by far (79%). The breakdown per fuel type reveals that 57,1% of Transnet s energy usage is related to electricity with 38,7% contributed by diesel consumption. The other fuel types contribute only 4,2%. 7.2 Energy Demand Model In order to understand and manage Transnet s future energy requirements, it is important to forecast both the consumption and peak demand. Consumption is an indicator of the quantity of energy that will be used while peak demand determines the infrastructure capacity that needs to be planned for. In the case of electricity, both components have a direct impact on the cost of energy from the supplier while the latter also includes a capital cost to Transnet for infrastructure. Consumption and peak demand requirements are influenced by freight demand volumes, infrastructure developments, potential future organisational energy saving initiatives and operational improvements and is therefore not a simple extrapolation of current needs Energy Consumption Modelling Transnet developed an Energy Demand Model (EDM) that can be used to forecast Transnet s annual energy consumption as a function of the long term (30-year) potential freight demand forecast. This model also utilises Transnet s Long Term Planning Framework (LTPF) to show how the mix and location of energy is expected to change. Due to TFR being such a significant energy user within Transnet, a more detailed approach is used to model the energy requirements of all the freight rail activities. This approach considers different train configurations, type of locomotives, gradients of the routes, electrical losses, to name a few. For all other Transnet Operating Divisions (ODs) a high level top-down approach is used. The EDM produces outputs at an organisational level with detail per operating division, fuel source (e.g. electricity, diesel, petrol, gas etc.), activity type (e.g. rail movements, port movements) and geographic location Energy Peak Demand Modelling The infrastructure needed to support the energy requirements is an important consideration in energy planning. The infrastructure needs to cater for the peak demand scenarios at each location. A basic analysis of the modelling components of peak demand has been concluded and will be included in future refinements of the EDM. A comparison between installed energy supply capacity with existing and planned infrastructure development and projected peak demand will identify the locations where the modelled demand exceeds installed capacity, now and in future. The energy demand outputs will also inform on the future Eskom capacity required at each of Transnet s supply points and inform strategic discussions around future supply capacity, and/or self-generation options. It will determine the capacity enhancements Transnet would need to cater for in the LTPF something which is only catered for on an aggregate or project-specific basis at this stage. Figure 27: Transnet Energy Consumption per Operating Division and Fuel Type Transnet as an organisation is one of the single largest energy consumers in the South African economy, representing approximately 1,5% of the national electricity energy consumption in Transnet SOC Ltd LTPF

17 7. Energy Demand (continued) 7.3 Energy Demand Results The EDM shows that Transnet s energy requirements are expected to increase from about 22,5 PJ in 2014 to 67 PJ in This represents more than 300% over the next 30-years (average annualised growth of 3,74%) (see Figure 28). The mix of energy sources per OD for 2014 and 2044, is shown in Figure 29. These figures show a small shift from electricity to diesel within TNPA and from diesel to electricity within TE, but not significant. Figure 28: Estimated Energy Requirements per Operating Division TFR continues to be the main contributor to electricity consumption, growing from 79% of the total energy consumption in 2014 to 84% in Figure 29: Estimated Energy Mix per Operating Division and Fuel Type Figure 28b: Estimated Energy Requirements per Fuel Type Some energy source switching and efficiency improvements have already been incorporated in the results. For example, the consumption characteristics of new locomotives, future train configurations and conversion to different traction types are incorporated already. Similarly, general efficiency improvements for property, port operations, pipelines and vehicle fleets have also been assumed. Even regeneration on some TFR lines have been assumed to be successfully utilised over time. 50 Transnet SOC Ltd LTPF

18 7. Energy Demand (continued) 7.4 Energy Cost Energy cost is a product of fuel prices and the organisation s energy mix. In 2014, Transnet s total energy cost was R6,4 billion, which was 19,3% of the total operating cost. It is clear that the direct cost impact alone justifies the strategic treatment of energy for the organisation Fuel Price Trends The EDM can be used to forecast Transnet s total energy cost for the next 30-years. The 2013 Annual Energy Outlook report from the United States Energy Information Administration (EIA) projects energy prices through to These forecasts were used as basis in the EDM for liquid fuels (diesel, petrol and jet fuel), coal and gas. Figure 30: Electricity Price Increases With regards to electricity price forecasts, the long term price paths of the Energy Intensive User Group (EIUG) Base Case Scenario was used with an average of 3% beyond The same price increases were assumed for the fixed annual energy costs, which include network charges, service charges administration charges, etc. These increases are shown in Figure 30. Figure 32: Estimated Energy Cost per Fuel Type The application of future fuel price changes yields the outcomes as shown in Figure 32 (this includes the demand and consumption charges for electricity). The EDM predicts that Transnet can expect to pay about R53 billion (2014 Rand) for energy by 2044; almost a ninefold increase on current costs. This excludes carbon taxes, if introduced Energy Mix Due to the vast difference in price for different fuel types, energy cost projections are very sensitive to the combination of fuel sources consumed. The projected mix of energy can be influenced by supply-side factors and the technologies employed in future. Transnet will have the ability to influence this mix to some extent by considering the changes in fuel costs and security of supply, but Transnet s electricity demand and consumption needs will continue to be high in future. The exact energy mix is difficult to predict, but it is expected that Transnet will use considerably more renewable energy resources and that natural gas will play a major role in the energy base load of the future. Clearly Transnets mix of energy will influence its infrastructure plans and therefore the LTPF. The forecasted increase in all fuel prices are shown in Figure 31, expressed as a percentage of the 2014 fuel cost. This figure shows that the expected increase in electricity costs are significantly more than the increases for other fuel types. 7.5 Summary and Conclusions Transnet has identified energy supply as one of Transnet s top business risks. Various initiatives are currently underway to better understand the energy risks and proposals are being developed for securing the medium- to long term energy requirements. Some of these initiatives include: Energy Demand Model (EDM) updates and refinements; Impact assessment of Natural Gas (NG) on Transnet project; and Energy security and carbon mitigation strategies. Future refinements of this model will consider the development of energy demand calculations, to inform the future Eskom capacity required at each of Transnet s supply points and to understand what Transnet will need to invest in terms of Overhead Track Equipment (OHTE) and locomotives. Figure 31: Fuel Price Trends Transnet is also exploring an alternative energy plan to help with energy security and carbon mitigation. A request for information was published in June 2014 to invite independent electricity suppliers of alternative energy sources, including shale gas, to propose cost effective, secure, low emission energy plan. At a national level, the Department of Energy is also developing several plans which are relevant to the use of energy and natural gas, including an Integrated Energy Plan (IEP), an Integrated Resource Plan (IRP), and a Gas Utilisation Master Plan (GUMP). Transnet is represented and participating in these initiatives. 52 Transnet SOC Ltd LTPF

19 Notes 54 Transnet SOC Ltd